Verratti, whose side won promotion to Serie A this month, was a shock inclusion in Prandelli's initial 32-man squad but misses out along with goalkeeper Emiliano Viviano.
Domenico Criscito had already been dropped in order to clear his name of match-fixing allegations while fellow defenders Davide Astori and Salvatore Bocchetti have been left out along with midfielders Luca Cigarini and Ezequiel Schelotto.
Prandelli's decisions were largely expected and the coach now has until midday on Tuesday to drop two more players for his final 23-man Euro squad.
Criscito's absence leaves Italy with just centre-back Giorgio Chiellini as a recognised defensive left footer.
Italy, who play Spain, Croatia and Ireland at the Euros in Ukraine and Poland next month, face Luxembourg in a friendly in Parma on Tuesday.
Squad of 25:
Goalkeepers: Gianluigi Buffon (Juventus), Morgan De Sanctis (Napoli), Salvatore Sirigu (Paris Saint-Germain).
Defenders: Ignazio Abate (AC Milan), Federico Balzaretti (Palermo), Andrea Barzagli (Juventus), Leonardo Bonucci (Juventus), Giorgio Chiellini (Juventus), Christian Maggio (Napoli), Angelo Ogbonna (Torino), Andrea Ranocchia (Inter Milan).
Midfielders: Daniele De Rossi (AS Roma), Alessandro Diamanti (Bologna), Emanuele Giaccherini (Juventus), Claudio Marchisio (Juventus), Riccardo Montolivo (Fiorentina), Thiago Motta (Paris Saint-Germain), Antonio Nocerino (AC Milan), Andrea Pirlo (Juventus).
Forwards: Mario Balotelli (Manchester City), Fabio Borini (AS Roma), Antonio Cassano (AC Milan), Mattia Destro (Siena), Antonio Di Natale (Udinese), Sebastian Giovinco (Parma).
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